Health-care reform doesn't have 10 years of taxes for six years of benefits

By
Ezra Klein

"I think you should take a look at Krauthammer's column today," writes an angry reader. "Why is it that you fail to mention the 6 years of expenditures, but 10 years of revenue? Something that I have not heard disputed from the Obamacare supporters." Happy to help. Here's what Krauthammer says:

The whole Obamacare bill was gamed to produce a favorable CBO number. Most glaringly, the entitlement it creates -- government-subsidized health insurance for 32 million Americans -- doesn't kick in until 2014. That was deliberately designed so any projection for this decade would cover only six years of expenditures -- while that same 10-year projection would capture 10 years of revenue. With 10 years of money inflow vs. six years of outflow, the result is a positive -- i.e., deficit-reducing -- number. Surprise.

This is the type of thing I was talking about in my column today: It sure sounds good. But how many readers know to check it against table one in the Congressional Budget Office's March 18 assessment (pdf) of the final health-care legislation? If you look at that table, however, here's what you'll see:

There is exactly one year when revenues are substantially larger than benefits: That's 2013. Between 2010 and 2012, revenues are smaller than benefits. And between 2014 and 2019, they're smaller than benefits (the bill is fiscally responsible because there are also spending cuts, but Republicans tend to focus on the taxes, as it's hard for them to say spending cuts aren't fiscally responsible). Here's the graph:

Furthermore, the implication of Krauthammer's argument is that the legislation starts revenues early and expenditures late and so will increase the deficit as time goes on. Is that true? Also no. The CBO looked at the second decade of health-care reform in order to guard against exactly this sort of chicanery. "The combined effect of enacting H.R. 3590 and the reconciliation bill would also be to reduce federal budget deficits over the ensuing decade relative to those projected under current law." And the deficit reduction in the second 10 years is vastly larger than in the first 10 years -- more than $1 trillion, as opposed to the $140 billion we'll see between 2010 and 2019.

There is a gimmick in the bill's first 10 years: Democrats, worried about the program's potential sticker shock, wanted to keep total spending in the first 10 years under $1 trillion. So they started the whole program -- both the benefits and the taxes -- later so the 10-year estimate only took into account six full years of the program. I thought that was a crummy move, and said so at the time. But if you measure from 2014 to 2023, the bill cuts the deficit by more than it does between 2010 and 2019. Surprise.

The fact that someone who reads the Washington Post and took the time to write to you had never heard a refutation of the 10 year 6 year nonsense shows how completely the Post is failing its readers.

If the Washington Post were a responsible newspaper, this widely refuted nonsense would have been refuted in the news pages. However, it is more important for the Post to be Ballanced than to report the facts.

I'm sure you know all of this. Keep up the good fight. You can't save the Post all by yourself (OK with help from Walter Pincus and Diana Priest) but you are doing a great job trying.

ab_13 I can make no sense whatsoever that SS revenues are not net savings. They are Federal government revenues. SS revenues are always included when calculating the budget deficit (aka the unified budget deficit). the claim that there is anything odd at all about counting SS revenues when scoring a bill demonstrates your total ignorance.

YOu clearly assume there must be somethign to the claim that the CBO score includes double counting. There is nothing at all to that claim. The CBO counted each revenue increase once, each spending increase once and each spending cut once and added up the three numbers.

No one with the slightest clue about the matter which you have chosen to address could possibly have demonstrated any more ignorance than you did. I suggest you study some before wasting Ezra Klein's time.

I always thought the goal of staying under $1 trillion in costs was silly because, to the average reader/voter, "$800 billion" probably looks like a bigger number upon casual perusal than, say "$1.2 trillion," does anyway.

But, IIRC, this was something the Blue Dog Dems wanted, so it was just a PR thing.

@rjw88, @hsny: I said nothing about any double counting. The CBO does not double count. Some of the Democrats have double counted when they've made claims about the bill, but the CBO has not, nor has Ezra. Nothing in my post mentioned double counting.

------@rjw88: "the claim that there is anything odd at all about counting SS revenues when scoring a bill demonstrates your total ignorance."

Nice try, but this is wrong. The CBO assumes that employers will pay more salary as the cost of insurance comes down, and this salary is subject to SS tax. When you pay more SS tax you are entitled to higher benefits in the future. So these new additional SS revenues do not represent a net savings to the government. The higher benefits are beyond the 10 year window, but they are very real. The issue is basically the same as that for the CLASS Act, this is revenue that when received creates a future liability that does not get counted in the CBO score.

------@hsny: "Ezra Klein addressed the "Social Security double counting" and "CLASS Act" canards in his post on January 6 of this year."

No, he did not really address the CLASS Act in that post. He somewhat admitted that it didn't actually represent a savings to the government, yet he still cites the score of the bill including the CLASS Act revenue. He basically just said "Yeah that money doesn't count, but if the bill works as expected 20 years from now it will pay for the deficit in the CLASS Act". He still has not come right out and admitted that it is wrong to count that initial $70B as deficit reduction.

Thanks, Ezra. This stupid canard is such nonsense. Isn't anybody on the Republican side of the aisle familiar with the idea of upfront costs? Or to take another example, is nobody familiar with a mortgage, in which one might have house payments extend well beyond the actual years of use?

As it is, the whole "10 years costs for 6 years benefits" is silly because, as you point out, the provisions don't end after 10 years. But even if they did, it's hardly damning. It's not an accounting trick to spread costs over a few years.

We know how Ezra keeps protesting that the $115 billion of 'administrative costs' that were revealed by the CBO in May last year should not be counted by opponents against the CBO score that claimed the ACA would reduce the deficit $143 billion.

Well, I just read a blog by an obvious hater from the right-wing who seems to contradict Mr. Klein. And who is that hater? None other than CBO director Douglas Elmendorf himself.

Here goes....in the past couple weeks Democrats have trotted out the supposed CBO assessment that repeal of the ACA would add $230 billion to the deficit. Where did that number come from? Check CBO Director Doug Elmendorf's blog here: http://cboblog.cbo.gov/?cat=5

Doug Elmendorf says the $230 billion is just a reversal of the original CBO score (the $143 billion 10-year deficit reduction becomes $230 billion by adding another year, since we are now one year in).

Now, I'm going against my norm and posting a lengthy paragraph from Doug Elmendorf's post about this $230 billion deficit 'hit' if the ACA were repealed. After referring to the $230 billion, Doug says:

"Those projections DO NOT INCLUDE [emphasis mine] any potential savings in discretionary spending, which is governed by annual appropriation acts. By CBO’s estimates, repeal of the health care legislation would probably reduce the appropriations needed by the Internal Revenue Service by between $5 billion and $10 billion over 10 years. Similar savings would accrue to the Department of Health and Human Services."

Why is this important? Because the discretionary spending for the IRS & HHS IS PART OF THE $115 BILLION conservatives have been talking about!!!

So Ezra, if CBO director Doug Elmendorf is correct that repeal would add to the deficit $230 billion, but then says this number does not include discretionary spending reductions since repeal will "probably reduce the appropriations needed", then wouldn't that make sense that this discretionary spending was also left out of the original CBO report claiming $143 billion 'deficit reduction'?

And, if the ACA is NOT repealed doesn't it stand to reason this discretionary spending will be required to support the ACA, and therefore should be added to the cost estimates of the original CBO score?

to "ab_13" you seem to be saying that several decades from now there will be additional costs to the federal government because (a) increased Social Security taxes today will lead to increased Social Security benefit payments decades into the future; and (b) although the extremely important CLASS Act will have more revenues in the first few decades than expenditures, that will eventually reverse. I'm not sure I accept those premises, but so what? Your point is that the deficit effects of healthcare reform shouldn't be judged over a ten-year span, but over a much longer time period. Fine. But CBO found that the deficit-reducing effects of healthcare reform beyond year ten are significantly greater than those in the first ten years. So if we look at deficit-increasing and deficit-reducing aspects of healthcare reform over the longer timespan required to fully-factor in the ultimate effects on SS and CLASS, the law does even better than it does in the short term.

@hsny: What do you mean you're not sure you accept those premises? Those are not my assumptions, they are simple facts about how the two programs work. The CLASS Act is break-even by design, so any early surplus is by definition offset by an equivalent future deficit. If you're not accepting those premises you're not accepting arithmetic.

-----"Your point is that the deficit effects of healthcare reform shouldn't be judged over a ten-year span, but over a much longer time period."

No, that is not my point. Personally I think even 10 years is a bit too long with something like healthcare that changes so dramatically, but whatever. The CBO scores things for 10 years because there is far too much uncertainty beyond that. Projecting the impact of this bill beyond 10 years is silly, there is a good reason the official score is only for 10. And none of this changes the fact that those two revenue sources are both already accounted for and cannot be called deficit reduction.

Thank you Ezra. You and others keep having to shoot down the same false or misleading criticisms of the health care bill and related economics over and over again but it looks like some of your counter-points are beginning to sink in. In the case of this 6 vs 10 years point by Krauthammer, what's your take on his motives -- is he deliberately misleading his readers and conflating the facts or has he not bothered to master the subject matter before weighing in with his opinions?

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